Miners operating in Australia, led by BHP Billiton,Rio Tinto and Xstrata, have long been enviedfor their proximity to China, the biggest consumer of coal, butthat advantage has been whittled away this year.

Coal producers have been hit by a triple whammy of risingwage, equipment and fuel bills plus new taxes, growing coalexports from the United States, and softer demand in China forthermal coal in power plants and coking coal in steel mills.

Thermal coal prices have fallen 20 percent this year to anear two-year low of $92 a tonne at the Australian port ofNewcastle, based on globalCOAL's index, which has left pricesclose to the operating cost for some mines.

"There's been such demand for gear over the last few yearsand mining guys get paid $140,000 to drive a dump truck. It's ajoke...It's all going to come home to roost now," said amarketing executive with a producer, who declined to be named ashe is not authorised to talk to the media.

New coal mines are particularly vulnerable due to thecompetition from other sources and soaring costs. In contrast,miners are still expected to pour funds into expanding iron oreoperations in Australia, where they still make fat profitmargins even with iron ore prices down from last year's highs.

Analysts say the coal projects most likely to be shelved arethose in Queensland's untapped Galilee Basin, where India's GVK and rival Adani Enterprises are among thebiggest players, while a Rio Tinto project in New South Wales isalso seen as likely to be delayed.

TONNAGES DROPPING

Australia's producers are not the only ones suffering, withminers in Indonesia also feeling the pinch from drop in prices.But operators in Australia face the extra challenge of soaringlabour costs plus carbon and mining taxes taking effect in July.

"There are some mines where the price is reaching theirmarginal cost of production, so obviously at a $92 price, thereare going to be a few more," said Tom Sartor, an analyst withRBS in Brisbane.

Evidence of falling sales is emerging in export statisticsfrom the key coal ports of Dalrymple Bay in Queensland, whichlargely exports coking coal, and Newcastle in New South Wales,mainly a thermal coal hub.

At Dalrymple Bay, exports are on course to fall 9 percent toa total of 50 million tonnes for the year to June 2012, despitethe fact that the previous year's comparison export numbers weredepressed by serious flooding in December 2010 and January 2011.

Port operations manager Greg Smith said the decline was dueto a drop in demand for coking coal from steel makers in Asiaand competition from U.S. exports of pulverised coal injection(PCI) coal and lower quality metallurgical coal.

"At this stage, steel production has been affected by pooreconomic conditions for most of the nations importing metcoalfrom DBCT," Smith told Reuters in an email.

"However, those economies will rebound, with just the timingbeing the unknown at this stage."

Coal exports from the United States have jumped as U.S.power stations have been switching from burning coal to naturalgas, thanks to a shale gas supply boom that has sent gas pricesto 10-year lows.

Exports from the United States are viable as freight rateshave dropped sharply this year.

"So our geographic advantage compared to North America is nolonger so strong, when you have trans-Pacific freights that areso low," said Andrew Harrington, an analyst at PatersonsSecurities.

Facing competition from U.S. PCI exports, Anglo American recently cut 14 out of 250 workers at its Foxleigh minein Queensland, where it is producing about 2.5 million tonnes ayear of PCI coal, well below the mine's 3.3 million tonnes ayear capacity.

That followed BHP's decision to close its Norwich Parkcoking coal mine also in Queensland, citing low output, highcosts and soft coal prices.

Producers have been cutting coking coal output even asoutput from BHP's Queensland coal mines, shipped out of aterminal next to Dalrymple Bay Coal Terminal, has been disruptedby a long-running fight with the mining union.

At Newcastle, Port Waratah Services has seen a nearly steadydrop in loadings over the past six months, from an annualisedrate of around 110 million tonnes in December to 91.8 milliontonnes in May.

Port Waratah user Gloucester Coal, whoseshareholders this week approved a takeover by China's YanzhouCoal , warned in its March quarterly reportthat due to weak demand it had to consolidate cargoes intolarger parcel sizes to cut freight costs.

"A large proportion of coal was sold through traders intothe Chinese spot markets as a result of continued soft demandfrom traditional markets," Gloucester said.